Minimizing the Risks of Litigation by Contract

02/12/2009

INTRODUCTION

The old adage that “an ounce of prevention is worth a pound of cure” applies to the legal profession just as it does to the rest of life. In the context of preparing a contract, a relatively minor investment in attorney time to address certain issues during the drafting stage may protect the client from large amounts of damages and attorney’s fees if litigation should later erupt out of the agreement. The provisions that counsel may include in a contract to limit a client’s exposure in a future lawsuit fall into two broad categories: (i) provisions expressly designed to limit the client’s litigation expenses and exposure to damages (e.g. indemnity provisions, limitation of remedies provisions, etc…) and (ii) provisions designed to block foreseeable arguments that an opponent might raise in litigation (e.g. integration clauses, clauses specifying that the contract may only be amended in writing etc. …), which often cost substantial amounts to litigate if they are not addressed in a contract. It is often worth the time to negotiate the inclusion of these provisions in an agreement at the outset of a business relationship, rather than waiting to address the issues in the courthouse at a later date.

The discussion below addresses some of the more important contract clauses that parties may utilize to limit their future exposure to litigation expenses and damages. The issues are discussed in the context of Texas common law and Article 2 of the Texas Uniform Commercial Code (“U.C.C.”).1 In addition to identifying the contract clauses at issue, this paper also addresses some of the strategic issues that the practitioner may consider when determining whether a particular clause is in the interest of the client in a specific business transaction.

Email Disclaimer

Sending an email will not establish an attorney-client relationship. You should not send us any information that you want treated confidentially. By clicking Accept you acknowledge that we may review and use any information you transmit to us.